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July 29, 2011

Creative Use of IT Systems in the Budget Office: Collaborative Budget Formulation Systems Show Promise

Posted by Sandeep Saxena

Automation of budget formulation processes has had limited success compared to the strides taken by many countries in computerization of budget execution and accounting functions. There have been fewer successful examples of computerized budget formulation. This anomaly may be partly attributed to the absence of standards in the budget formulation process. Unlike accounting systems that have rather well established processes and standards, the budget formulation process varies from country to country. The country-specific peculiarities mean that in order to succeed, a budget formulation system has to be much more flexible and adaptable to the local requirements.

A recent study by the IMF’s regional technical assistance center in the Caribbean (CARTAC) explores the potential for use of a content management system (CMS) for operating the budget formulation process. The study, “A Collaborative Budget Formulation System: Concepts and Options,” John Moore, July 2011 (found here) concludes that information management products like Alfresco and MS SharePoint, among others, can offer rapid, flexible development of new business applications, including a budget formulation system, without having to depend on scarce ICT support resources.

A CMS is a collection of procedures used to manage work flow in a collaborative environment. CMSes are typically used for management of large and voluminous Web or Intranet sites.They typically help organizations in creation, management, distribution, and publishing of corporate information. CMSes manage the entire life-cycle of web/Intra-net pages from their creation to archival. They usually come with a template-based authoring tool that can be used even by non-technical staff with some basic training.

The distinctive features of a CMS include a central repository of data and an in-built workflow management system. Content created by users is stored in the central repository, which is also used to track changes to the content, as well as who changed what and when. Data in a CMS can be defined as nearly anything: documents, numbers, statistics, graphics, and so on. The workflow mechanism manages the approval process, pushing the content through the pre-defined levels of approvals, before finally publishing it on the Web/Intranet. Version control is another important feature of a CMS. The versioning capability allows information development through an iterative process. The entire operation is managed in a controlled environment by clear definition of access rights.

The main advantage of a CMS lies in its adaptability and easy-to-use front-end tools. A CMS can be easily adapted to an organization’s work-flow and business process requirements. Its user-interfaces are generally easy to work with and the system does not require advanced IT skills for management. It is typically administered by non-technical staff. This allows the business units to retain the functional control of the system.

The usefulness of a CMS is particularly seen in bringing order to a lengthy and complex process involving numerous people within or outside the organization. A CMS allows for a large number of people to simultaneously contribute to and share stored data in a controlled environment. It is designed to facilitate storage and retrieval of data; reduce duplication of inputs at successive stages of a process; and significantly improve communication among users.

The CARTAC study views the budget formulation essentially as a collaborative information creation process: information is created by a number of widely dispersed set of contributors – the budget users – synthesized, approved through an iterative process, and finally published and presented by the Budget Office. Drawing parallels with a typical content management operation, the study suggests using the workflow capabilities of a CMS to collect, review, collate, and process budget data; its versioning capabilities can be used to generate and compare alternate scenarios; and the approval process could support dynamic iterations by allowing budget data to move either way in the approval chain.

A CMS, the study suggests, would be a “capable, low-risk, cost-effective way to gain experience and build confidence” among the participants. A gradual evolutionary approach has been recommended. To begin with, a simple proof of concept could be implemented, which should be allowed to grow in complexity and functionality with each passing budget cycle, with the objective of gaining full maturity in the medium term.

The main challenge in implementing a CMS-based solution will perhaps be in selection of the right tool. There are hundreds of CMS available in the marketplace at present, all possessing different capabilities and strengths, and there is not much consistency between vendors. It is one of the most rapidly evolving software technologies. Therefore, the selection must be based on a comprehensive and careful evaluation of the tool. The CARTAC study evaluated Alfresco and found no critical shortcoming that would prevent it or similar products from being used effectively in supporting a typical budget formulation process.

It appears that CMS-based applications may be particularly useful in introducing IT in an organization and getting a large set of people to come together on a common platform in a relatively short span of time. Compared to the traditional ERP system, CMS-based solutions are likely to be less proficient in functionalities and data processing capabilities. To some extent these deficiencies could be overcome by use of well known analytical tools such as MS Excel, which are usually well integrated with most CMSes. They, however, would score over ERPs in adaptability as well as ease of use and administration: aspects that are critical for initial success. Use of CMS-based solutions has the potential to bring a paradigm shift in the approach to budget process automation. The concept, however, still needs to be further developed, piloted, and successfully tested in a budget environment, before it can really be recommended as a fully functional solution.

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.

Comments

There are some unfortunate and significant flaws to this analysis. Most importantly, a CMS can be effective at managing the budget collateral, but has weaknesses in actively automating the formulation of the budget.

NOTE:
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FreeBalance is a provider of budget preparation, financial management and content management software for government. As such, some of my comments may not be entirely objective.

CMS Advantages
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Content management systems like Alfresco are ideal to managing a repository of documents and enabling content. It supports version control and check-in/check-out control. The CMS would be ideal when a process is mostly document bound. (Mind you, there is nothing preventing a COTS budget preparation system from supporting repository functionality or integrating with Alfresco, Joomla, Drupal or any other open source CMS).

The CMS has no concept of transactions. The macroeconomic analysis of the current situation and historical "actuals" from previous years would need to occur outside the CMS. The budget calendar that requires submissions, drafts, approvals etc. would need to be programmed into the CMS, and, therefore, require IT intervention. At no time can the CMS provide a view on what the budget is looking like in aggregate. It can't tell you who has fallen behind in the schedule.

The CMS cannot provide what-if scenario analysis. It does not track government assumptions on costs, so a line ministry could budget anywhere from 1$ to 1,000,000$ for a single computer system. The CMS cannot enable the budget office to adapt a single "cost driver" like currency exchange or cost for energy or cost for a salary increase and see the effect in the budget.

The CMS cannot provide linkage to the Chart of Accounts/Budget Classifications to create budget appropriations in the IFMIS. It also can't analyze budget execution data during the fiscal year. So, the budget appropriations would need to be stored in a different system or the budget would need to be manually coded into the IFMIS.

Although the CMS can be used to assemble the final budget book through revision control, the charts and tables required would typically need to be assembled manually rather than automatic through document automation functionality. (Some countries in the CARTAC region are able to create budget books automatically from the budget formulation system.)

No Standards for Budget Preparation
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This assertion is absolutely true. There is no established international standard or "best practice" for budget formulation. Most budget formulation systems in use by governments appear to be custom developed to follow the legal budget cycle. (And, private sector budget systems do not seem to operate well in government.) My observation is that these systems tend to support limited functionality to enable line ministries to enter budget proposals. As such, the use of a CMS represents an improvement.

Our experience with developing budget formulation software tells a different story. It is possible to model a system that supports a broad range of budget calendars with adjustable rules and approval methods. It is possible to support multiple year historical data and MTEF 3-year (or more) forward years. Macroeconomic analysis and cost drivers can be created. As can full support for a changing multiple year chart of accounts. As can assembling a budget book. And, the toolset can be used for virements, supplemental budgets and scenario management during the fiscal year. With version control. All with no more IT intervention than a CMS.

The worst case scenario from a budget reform perspecticve is being stuck with a legacy budget system that continues to rigidly support a bottom-up single year approach when you are trying to implement a multi-year budget process using rolling forward estimates.

I hope to post a blog shortly that discusses some of the elements that support effective rolling forward estimates in an MTEF based approach to budgeting. In that blog I will likely suggest that a well designed budget information system (in an IFMIS) can assist in embedding the mechanical process of rolling forward estimates.

In a good budget system, designed for the MTEF approach, the forward estimates have a permanent place to reside and have protected status pending analysis and negotiation of proposed new expenditure initiatives and savings options. Such a system should ideally include version control, scenario analysis tools, iterations, approval escalations, and a tracking function that supports publishing of a reconciliation table at the end of the budget - that transparently shows the changes in the forward estimates that occurred through the budget process (and subsequently due to virements).

The MTEF approach using rolling forward estimates also lends itself to including performance information with the budget - another complication for any budget system - but that's another topic.

While clearly it is physically possible for excel, aided by a good CMS, to achieve most of the above features (and add the benefit of improved colaboration), the rolling forward estimates MTEF approach can be made more systematic, consistently repeatable, with less risk of formula errors etc, and potentially more transparently, if done within a budget system designed for this purpose. Whether such an ideal budget module exists off-the-shelf with these feature is an open question.

JOHN: Thanks to Doug Hadden for a good discussion with many excellent points. Some of the critical comments may stem from semantic vs. substantive differences. It should be noted that a CMS based system can be a good way for small countries to quickly try different alternative approaches, gain experience, and build human capacity before making an expensive, decade(s) long commitment to a Commercial-Off-The-Shelf (COTS) budget formulation system.

Let me comment on Doug's main criticsms:

DOUG: "There are some unfortunate and significant flaws to this analysis. Most importantly, a CMS can be effective at managing the budget collateral, but has weaknesses in actively automating the formulation of the budget."

JOHN: It is undoubtedly true that a CMS has weaknesses in actively automating the formulation of the budget, as is true of all budget formulation software. Budget formulation is a difficult activity to automate. The strengths of a CMS, particularly when integrated with an office automation suite, include empowerment of PFM professionals to dynamically adapt the system to changing budget formulation requirements with little direct intervention by ICT staff.

It should also be noted that a CMS and COTS products like FreeBalance are not mutually exclusive. Rather, they can be very complimentary. A CMS can help ensure the success of a COTS budget formulation system by, among other things, strengthening the professional capabilities of PFM system users. Alternatively, a country may choose to begin slowly with a CMS based system, adding a COTS budget formulation system as they gain experience, confidence, and capacity.

DOUG: "Content management systems like Alfresco are ideal to managing a repository of documents and enabling content. It supports version control and check-in/check-out control. The CMS would be ideal when a process is mostly document bound. (Mind you, there is nothing preventing a COTS budget preparation system from supporting repository functionality or integrating with Alfresco, Joomla, Drupal or any other open source CMS)."

JOHN: In addition to documents, CMS products can also manage spreadsheets (e.g., Excel, OpenOffice CALC). In a simple budget formulation system, spreadsheets can be used to manage numeric budget version data directly. Then, as organizations gain sophistication, spreadsheets managed by the CMS may serve as the user interface to numeric budget databases, including multi-dimensional “business intelligence” OnLine Analytical Processing (OLAP) databases . The flexibility of a CMS permits budget shops to start with simple prototypes and evolve as needed in a timeframe of their choosing.

Regarding integration of PFM systems with CMS products, there seems to be agreement. Yes, the two can absolutely complement one another.

DOUG: "The CMS has no concept of transactions. The macroeconomic analysis of the current situation and historical "actuals" from previous years would need to occur outside the CMS. The budget calendar that requires submissions, drafts, approvals etc. would need to be programmed into the CMS, and, therefore, require IT intervention. At no time can the CMS provide a view on what the budget is looking like in aggregate. It can't tell you who has fallen behind in the schedule."

JOHN:
1. Transactions - Pre-decisional budget formulation data is typically manipulated at levels well above transactional data. It is not clear what the issue is with transactions in this context.
2. Analysis - Integration of office suite software, including spreadsheets and business intelligence (BI) tools, with the CMS enables sophisticated budget analysis, including macroeconomic and historical trend analysis. As a result of this integration, government enterprises are able to leverage existing investments in office software, automated analytical tools, and staff training.
3. Calendar - Adding calendar events is a simple administrative function, no IT intervention required.
4. Aggregate - The integration of a CMS with analytical tools and the capability to manage documents, including budget reports, provides a rich medium for the display of budget data at all levels of aggregation/disaggregation.
5. Schedule Status -Workflow capabilities included in CMS products offer a range of options for monitoring who is ahead and who is behind schedule. Capabilities vary by product. Integrated analytical tools and reports add even more capabilities to the environment.

DOUG: "The CMS cannot provide what-if scenario analysis. It does not track government assumptions on costs, so a line ministry could budget anywhere from 1$ to 1,000,000$ for a single computer system. The CMS cannot enable the budget office to adapt a single "cost driver" like currency exchange or cost for energy or cost for a salary increase and see the effect in the budget."

JOHN: It is true and correct that an out-of-the-box CMS is not a budget formulation system. Nor does any CMS claim to be. The analytical tools, workflows, calendars, training materials, reference documentation, and many other details that would enable a CMS to help manage the budget formulation process will need to be integrated and added as needed. However, the advantage this provides is that budget professionals can add as much or as little functionality as they wish, at their own pace, and at relatively low cost. A CMS empowers budget professionals to iteratively and collaboratively try new functions until they shape a toolset that works for them with little to no IT intervention needed.

It should be noted that any information system, including FreeBalance, will also require a significant amount of configuration in order to become useful for budget formulation activities.

DOUG: "The CMS cannot provide linkage to the Chart of Accounts/Budget Classifications to create budget appropriations in the IFMIS. It also can't analyze budget execution data during the fiscal year. So, the budget appropriations would need to be stored in a different system or the budget would need to be manually coded into the IFMIS."

JOHN: These are relevant points. Any linkage to the CoA/BudClass would occur through analytical tools. It is questionable whether pre-decisional budget appropriations should be added to a production FMIS. It is also unclear under what circumstances budget formulation analytical tools would be used to analyze budget execution data during the fiscal year. Live production post-decisional budget execution data should generally be kept completely separate from pre-decisional budget formulation data. Budget data should not be transferred to the production FMIS until all CoA/BudClass questions have been resolved. There are a number of reasons why pre-decisional budget formulation data should be managed separately from post-decisional data, including the fact that pre-decisional data is often highly aggregated/summarized well above the levels of detail required for budget execution.

DOUG: "Although the CMS can be used to assemble the final budget book through revision control, the charts and tables required would typically need to be assembled manually rather than automatic through document automation functionality. (Some countries in the CARTAC region are able to create budget books automatically from the budget formulation system.)"

JOHN: This is a very good point. Integration of the CMS with an office automation suite such as Microsoft Office or OpenOffice enables numbers, charts, and tables to be dynamically and automatically configured and updated as data changes. In addition, indices, tables of contents, figures, photographs, and many other elements of a complex budget document are dynamically and automatically updated with each new version. Some CMS products with a document management or publication heritage have many of these capabilities directly included and do not require integration with an office software suite.

DOUG:
"No Standards for Budget Preparation
-----------------------------------
This assertion is absolutely true. There is no established international standard or "best practice" for budget formulation. Most budget formulation systems in use by governments appear to be custom developed to follow the legal budget cycle. (And, private sector budget systems do not seem to operate well in government.) My observation is that these systems tend to support limited functionality to enable line ministries to enter budget proposals. As such, the use of a CMS represents an improvement."

JOHN: Agree. At a minimum, a CMS represents a significant improvement in the management of budget formulation workflow and improved two-way collaboration between the MoF and line ministries.

DOUG: "Our experience with developing budget formulation software tells a different story. It is possible to model a system that supports a broad range of budget calendars with adjustable rules and approval methods. It is possible to support multiple year historical data and MTEF 3-year (or more) forward years. Macroeconomic analysis and cost drivers can be created. As can full support for a changing multiple year chart of accounts. As can assembling a budget book. And, the toolset can be used for virements, supplemental budgets and scenario management during the fiscal year. With version control. All with no more IT intervention than a CMS."

JOHN: As described, this sounds like a remarkably useful budget formulation system. A CMS, on the other hand, is a cost effective, general purpose system that can be used alone or in combination with other software, including office automation and information management software. A CMS can be used to collaboratively develop a variety of complex documents, including budget documents, as well as facilitate business intelligence, build human capacity, enhance government continuity, and minimize the impact of staff turnover. As such, it represents a strategic investment that can help governments become more efficient and effective across a range of functions. This may be an important consideration for cash strapped governments in the context of overall value and utility.

CMS, as described, will for sure make the process controls and workflow smoother. Yet, the sudden shocks that the National Budget Office, in many countries, give by accommodating the wish lists of the politicians have to be tackled.

Conceptually, ex ante controls and reforms management is more important than the ex post reform pillars. If the Budget formulation process and practices, in the Line Ministries etc., are improved with the CMS, it will be great!

I want to thank Doug for his reaction and John for his extensive technical discussion.

In the specific context of low capacity environments, the issue is not that of availability of technology but how well it fits in the given environment, and how well it is used. In such environments, a simple solution has a far greater chance of finding user acceptance and being actually put to use than a complex, more 'capable' system. There are numerous examples of idle investments in developing and even developed countries – expensive systems having been procured and installed and have remained grossly underutilized for a variety of reasons.

The country experience of using budget preparation systems in the Caribbeans, for example, would suggest that the advance features of budget preparation systems, such as support for MTEF and what if analysis, remain largely unutilized. Antigua is considered a success, but they seem to be using only the basic features of the system. They don’t have a MTEF and don’t do what if analysis. Nevis has reportedly been encountering problems in changing their program structure in the system. Guyana is reported to be unhappy with the budget preparation module. In reality, even in many relatively large developing economies the higher analytical needs for budget preparation are most commonly met by using tools such as excel.

The moot point is that small economies do not look for a bells and whistles alternative. They can benefit more by a basic mechanism for collecting budget submissions in a uniform way, collating them and producing the budget documents. The last thing they need is complexity, because they cannot utilize it. A CMS based budgeting system may not be the best equipped technical solution but it provides a cost effective alternative with greater potential to engage people working at the cutting-edge level, as it allows them to use familiar office automation software even for their business critical activities. This approach allows them to grow with the system over time. As and when they get to the stage where greater functionality is required, they have the option [and are better prepared] to implement a fully fledged budget preparation option.

It looks like I will need to provide a comprehensive analysis when I get back from vacation next week. A quick additional response in the meantime:

IT involvement
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Just because many budget formulation systems in place today are built on business intelligent platforms that require IT intervention, it doesn't mean that it must be this way. There is no reason why a properly developed COTS government-focused budget system can be designed to require less IT involvement than a general-purpose CMS.

Transactions
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First point is about structured data- generates computer transactions rather than financial transactions. A CMS stores unstructured data like documents into a repository. Structured data is needed to support data entry of numbers, and rolling up and down. This can support any top-down (budget ceilings, earmarks, direct budgetary support) and bottom-up processes. (just because many budget prep systems only support bottom-up doesn't mean it has to.

Second point is related to financial budget transactions. These include appropriations, virements, allotments, warrants, supplemental budgets, continuing resolutions. (And, in some cases, actual journal vouchers.) One loses automation and introduces the opportunity for errors by managing these transactions outside the budget system. The approved document may have said one thing, but how do we ensure that the appropriation that operates in the IFMIS is identical.

Guyana
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That's a bit of a low blow. I am very familiar with this system and how it is used in Guyana. And, what the perception is. I've learned a lot because of my contact with government people. Let's assume for a second that an objective observer identifies faults with the FreeBalance software in use by the government. That suggests a disconnect between the software and the way in which the client wishes to use it. It is not a condemnation of the category itself. It might not be a problem with the software per se. Or the current version.

These comments from everyone is really helping to gain more insight into automating the budget process. Let's keep the dialog going.

Bells and Whistles
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There seems to be a fundamental disagreement on what is core and context (i.e. "bells and whistles") in budget formulation systems. My contention is that assembling the financials is core to budget formulation and not a "nice to have". It is not a complex function for those who are using the government accounting system to collect the financial information linked to the chart of accounts. This is effectively what budget users are doing in spreadsheets.

Progressive Activation
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There is no disagreement that systems should adapt to user capacity. Many observers here seem to be of the thinking that COTS budget formulation systems require users to learn complex functionality. This is not really the case. Much like the CMS example, the budget formulation software can provide simple budget proposals with approvals and assembly as a base functions. Users do not need to understand scenario planning, cost drivers or program budgeting. These functions can come later - as in the example from Antigua where not all capabilities are being leveraged at this time. There is no reason why a budget formulation system cannot be more simple to use, and more intuitive than a CMS.

CMS and Budget Formulation is not Mutually Exclusive
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CMS software is often used to manage documents and act as a repository for budget management content. (We've had experience integrating with Drupal and Sharepoint. Alfresco, Documentum, OpenText, Joomla etc. could also be supported.)